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FINAL EXAMINATION
GROUP IV
(SYLLABUS 2012)
SUGGESTED ANSWERS TO QUESTIONS
DECEMBER 2015
Paper- 18 : CORPORATE FINANCIAL REPORTING
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Answer all the questions.
All workings must form part of your answer.
Assumptions, if any must be clearly indicated.
SECTION A
Question No. 1 is compulsory.
1. (a) RR Private Limited has taken machinery on lease from RR Ltd. The information is as under:
Lease term = 4 years
Fair value of inception of lease = ` 20,00,000
Lease rent = ` 6,25,000 p.a. at the end of year
Guaranteed residual value = ` 1,25,000
Expected residual value = ` 3,75,000
Implicit interest rate = 15%
Discounted rates for 1st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575,
0.5718 respectively. Calculate the value of lease liability as per AS-19. 5
Answer:
1. (a) According to para 11 of AS 19 “Leases”, the lessee should recognize the lease as an asset
and a liability at an amount equal to the fair value of the leased asset at the inception of
the finance lease. However, if the fair value of the leased asset exceeds the present value
of the minimum lease payments from the standpoint of the lessee, the amount recorded
as an asset and a liability should be the present value of the minimum lease payments
from the standpoint of the lessee.
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(1) Shareholders’ Funds: (1) Non-Current Assets:
Share Capital Fixed Assets 50,00,000
(i) Equity Shares of ` 10 each 50,50,000
(ii) 8% Preference Shares of` 10 each
9,50,000 (2) Current Assets:
(2) Non-Current Liabilities: (a) Inventories 20,00,000
Long-Term-Borrowings- 12% Debentures 15,00,000
(b) Trade Receivables-Debtors
10,00,000
(c) Cash & Cash
Equivalents 5,00,000
(3) Current Liabilities:
Sundry Creditors and Other
Current Liabilities 10,00,000
Total 85,00,000 Total 85,00,000
Sarthi Ltd. agrees to take over Arjuna Ltd. by issuing two Preference Shares of ` 10 each for
every Preference Shares held by the Shareholders of Arjuna Ltd. and requisite number of
Equity Shares of ` 10 each at par to discharge the amount of purchase consideration after
issuing Preference Shares. Purchase Consideration is settled as per Book Value of theassets and current liabilities taken over only. The Debentures will be taken over by Sarthi
Ltd. on the agreement that these will be paid off at 10% premium after one year.
Debenture holders of Arjuna Ltd. will accept 12% Debentures of Sarthi Ltd. Calculate
purchase consideration. 5
Answer:
2. (a)
Purchase Consideration by Net Assets Method
Particulars `
Book Value of Assets taken over (i.e. Total of Assets Side)
Less: Liabilities taken over — Debentures @ 10% Premium
(`15 Lakhs + 10% of
`15 Lakhs)
Sundry Creditors & Other Liabilities
85,00,000
(16,50,000)(10,00,000)
Net Purchase Consideration 58,50,000
This purchase consideration shall be discharged by 8% Preference Shares and Equity
Shares of Sarthi Ltd. (Issue of Debentures to the Debenture holders’ of Arjuna Ltd. shall not
be included in Purchase Consideration).
Number of Shares to be issued is computed as under -
A. Preference Shares to be issued (` 9,50,000/10) × 2 = 1,90,000 Shares
B. Balance of Purchase Consideration = `58,50,000 - `19,00,000 = ` 39,50,000
B. Equity Shares to be issued 39,50,00010=`
` = 3,95,000 Shares
(b) The Balance Sheet of Big Ltd. and Small Ltd. as at 31.03.2015:
(` in lakh)
Big Ltd.`
Small Ltd.`
Big Ltd.`
Small Ltd.`
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Share Capital
Profit & Loss A/c
Sundry Creditors
40
7.5
12.5
15
–
12.5
Sundry Assets
(including cost of shares)
Goodwill
Profit and Loss A/c
56
4
–
20
5
2.5
60.0 27.5 60.0 27.5
Additional Information:
(i) The two companies agree to amalgamate and form a new company, Medium Ltd.
(ii) Big Ltd. holds 10,000 shares in Small Ltd. acquired at a cost of ` 2,50,000 and Small
Ltd. holds 5,000 shares in Big Ltd. acquired at a cost of ` 7,00,000.
(iii) The shares of Big Ltd. are of ` 100 and are fully paid and the shares of Small Ltd. are
of ` 50 each on which ` 30 has been paid-up.
(iv) It is agreed that the goodwill of Big Ltd. would be valued at ` 1,50,000 and that of
Small Ltd. at ` 2,50,000.
(v) The shares which each company holds in the other are to be valued at book value
having regard to the goodwill valuation decided as given in (iv).
(vi) The new shares are to be of a nominal value of ` 50 each credited at ` 25 paid.
You are required to:
(i) prepare the Balance Sheet of Medium Ltd., as at 31st March, 2015 after giving effect
to the above transaction; and
(ii) prepare a statement showing the shareholdings in the new company attributable to
the shareholders of the merged companies. 10
Answer:
2. (b) Balance Sheet of Medium Ltd. as on 31.03.2015
Particulars Note This Year(`)
Prev. Year(`)
I EQUITY AND LIABILITIES
(1) Shareholders' Funds:
(a) Share Capital 1 45,50,000
(2) Current Liabilities
Trade Payables 25,00,000
Total 70,50,000
II ASSETS
(1) Non-Current Assets:
Fixed Assets
Intangible Assets 2 4,00,000(2) Current Assets`(53,50,000 +13,00,000) 66,50,000
Total 70,50,000
Notes to the Balance Sheet (` Crores) Note 1: Share Capital
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Particulars This Year
(`)
Prev. Year
(`)
1,82,000 shares of `50 each `25 paid up
[Issued for consideration other than cash]
45,50,000
Total 45,50,000
Note 2: Fixed Assets
Particulars This Year
(`)
Prev. Year
(`)
Intangible Assets
Goodwill `(1,50,000 +2,50,000) 4,00,000
Total 4,00,000
Statement of Shareholding in Medium Ltd.
Particulars Big Ltd.`
Small Ltd.`
Total value of Assets 44,20,513 8,52,564
Less: Pertaining to shares held by the other company 5,52,564 1,70,513
38,67,949 6,82,051
Rounded off to 38,67,950 6,82,050
Shares of new company (at `25 per share) 1,54,718 27,282
Total purchase consideration to be paid to Big Ltd and Small Ltd.
(` 38,67,950 + ` 6,82,050) = ` 45,50,000
Number of shares in Big Ltd. (40,00,000/100) 40,000 shares
Number of shares in Small Ltd. (15,00,000/50) 50,000 shares
Holding of Small Ltd. in Big Ltd. (5,000/40,000) 1/8
Holding of Big Ltd. in Small Ltd. (10,000/50,000) 1/5
Number of shares held by outsiders in Big Ltd. (40,000 - 5,000) = 35,000
Number of shares held by outsiders in Small Ltd. (50,000 - 10,000) = 40,000
Workings Note:
Calculation of Book Value of Shares
Big Ltd`
Small Ltd.`
Goodwill 1,50,000 2,50,000
Sundry Assets other than shares in other company
(56,00,000 - 2,50,000)(20,00,000 - 7,00,000) 53,50,000 13,00,000
55,00,000 15,50,000
Less: Sundry Creditors 12,50,000 12,50,000
42,50,000 3,00,000
If “x” is the Book Value of Assets of Big Ltd and “y” of Small Ltd.
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x = 42,50,000 +15
y
y = 3,00,000 +18
x
x = 42,50,000 +
( )1 13,00,000 x
5 8
+
= 42,50,000 + 60,000 +1
40 x
3940
x = 43,10,000
x = 43,10,000 ×4039
x = 44,20,513 (approx.)
y = 3,00,000 +18
(44,20,513)
= 3,00,000 + 5,52,564
= ` 8,52,564 (approx.)
Book Value of one share of Big Ltd. =44,20,513
40,000
= ` 110.513 (approx)
Book Value of one share of Small Ltd. =8,52,56450,000
= ` 17.05 (approx)
(c) The Balance Sheets of HARD LUCK Ltd. on 31st March, 2015 is as under:
Liabilities ` Assets `
Authorised, Issued Equity Share
Capital 20,000 shares of `100 each
10,000, 7% Preference Shares of 100
each
Sundry Creditors
Bank Overdraft
20,00,000
10,00,000
7,00,000
3,00,000
Goodwill
Plant and Machinery
Stock
Debtors
Preliminary Expenses
Cash
Profit and Loss Account
2,00,000
18,00,000
3,00,000
7,50,000
1,00,000
1,50,000
7,00,000
40,00,000 40,00,000
Two years’ preference dividends are in arrears. The company had bad time during the
last two years and hopes for better business in future, earning profit and paying dividend
provided the capital base is reduced.
An internal reconstruction scheme as follows was agreed to by all concerned:
(i) Creditors agreed to forego 50% of the claim.
(ii) Preference shareholders withdrew arrear dividend claim. They also agreed to lower
their capital claim by 20% by reducing nominal value in consideration of 9%
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dividend effective after reorganization, in case equity shareholders’ losses exceed
50% on the application of the scheme.
(iii) Bank agreed to convert overdraft into term loan to the extent required for making
current ratio equal to 2:1.
(iv) Revalued figure for plant and machinery was accepted as ` 15,00,000.
(v) Debtors to the extent of ` 4,00,000 were considered good.
(vi) Equity shares shall be exchanged for the same number of equity shares at a revised
denomination as required after the reorganisation.
Show:
(a) Total loss to be borne by the equity and preference shareholders for the
reorganisation.
(b) Share of loss to the individual classes of shareholders.
(c) New structure of share capital after reorganization.
(d) Working capital of the reorganized Company. 10
Answer:
2. (c)
(a) Loss to be born by Equity and Preference Shareholders
Profit and loss account (debit balance) 7,00,000
Preliminary expenses 1,00,000
Goodwill 2,00,000
Plant and machinery (` 18,00,000 - ` 15,00,000) 3,00,000
Debtors (` 7,50,000 - ` 4,00,000) 3,50,000
Amount to be written off 16,50,000
Less : 50% of sundry creditors 3,50,000
Total loss to be borne by the equity and preference shareholders 13,00,000
Note : Two years’ preference dividend (arrears) have been ignored in the computation of
loss to be borne by equity and preference shareholders.
(b) Share of loss to preference shareholders and equity shareholders
Total loss of ` 13,00,000 being more than 50% of equity share capital i.e. ` 10,00,000.
Preference shareholders’ share of loss = 20% of ` 10,00,000 = ` 2,00,000
Equity shareholders’ share of loss (` 13,00,000 - ` 2,00,000) = ` 11,00,000
Total loss = ` 13,00,000
(c) New structure of share capital after reorganisation
Equity shares : `
20,000 equity shares of ` 45 each, fully paid up
(` 20,00,000 - ` 11,00,000) 9,00,000
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Preference shares:
10,000, 9% preference shares of ` 80 each, fully paid up
(` 10,00,000 - ` 2,00,000) 8,00,000
17,00,000
(d) Working capital of the reorganized company ` `
Current Assets :
Stock 3,00,000
Debtors 4,00,000
Cash 1,50,000
8,50,000
Less : Current Liabilities :
Creditors 3,50,000
Bank overdraft** 75,000 4,25,000Working capital 4,25,000
Note : Current ratio shall be 2 :1, i.e. total current liabilities shall be 50% of ` 8,50,000 (i.e.` 3,00,000 + 4,00,000 + 1,50,000) = ` 4,25,000. Therefore, Bank overdraft = ` 75,000
(` 4,25,000 less creditors ` 3,50,000).
(d) The following are the Balance Sheet of SUN Ltd. and MOON Ltd. As at 31.3.2015:
(Figure in ` lakhs)
Liabilities SUN Ltd. MOON Ltd. Assets SUN Ltd. MOON Ltd.
Share Capital:
Fixed Assets:
Equity Shares 500.00 300.00 Land and Building 250.00 155.00
(` 10 per share) Plant and Machinery 325.00 170.00
14% Preference Shares 220.00 170.00 Furniture & Fittings 57.50 35.00
(` 100 each) Investments 70.00 50.00
General Reserve 50.00 25.00 Current Assets, Loans and
Export Profit Reserve 30.00 20.00 dvances:
Investment Allowance Stock 125.00 95.00
Reserve — 10.00 Debtors 90.00 103.00
Profit & Loss A/c 75.00 50.00 Cash & Bank 72.50 52.00
13% Debentures 50.00 35.00
(` 100 each)
Trade Creditors 45.00 35.00
Other Current Liabilities 20.00 15.00
990.00
660.00
990.00
660.00
SUN Ltd. takes over MOON Ltd. on April, 2015. The purchase consideration is discharged
as follows:
(i) Issued 35,00,000 Equity Shares of ` 10 each at par with Equity Shareholders of MOON
Ltd.
(ii) Issued 15% Preference Shares of ` 100 each to discharge the Preference Shareholders
of MOON Ltd. at 10% premium.
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(iii) The Debentureholders of MOON Ltd. will be converted into equivalent number of
Debentures of SUN Ltd.
(iv) The statutory reserves of MOON Ltd. are to be maintained for two more years.
Required:
Prepare the Balance Sheet as on April 10, 2015 (Opening Balance Sheet) of SUN Ltd. afteramalgamation has been carried out on the basis of amalgamation in the nature of the
Merger. 10
Answer:
2. (d) Balance Sheet of Sun Ltd. as on 10.04.2015
Particulars 10.04.2015 10.04.2014
Equity and Liabilities ` in Lakhs ` in Laths
(1) Shareholders’ Funds:
(a) Share Capital 1 1,257
(b) Reserves & Surplus 2 193
(2) Non-Current Liabilities
- Secured Loan – 13% Debentures (`100 each) 85
(3) Current Liabilities:
(a) Trade Payables - Sundry Creditors 80
(b) Other Current Liabilities 35
Total 1,650
Assets
(1) Non-Current Assets:
(a) Fixed Assets:
(i) Tangible Assets
3 992.5
(b) Non-current investments 120(2) Current Assets:
(a) Inventories - Stock 220
(b) Trade Receivables - Debtors 193
(c) Cash & Cash Equivalents – Cash & Bank 124.5
Total 1,650
Notes to Balance Sheet:
1. Share Capital 10.04.2015
` in Lakhs
10.04.2014
` in Lakhs
Authorised, Subscribed and Paid up Capital :
85,00,000 Equity Shares of `10 each 850
15% 1,87,000 Preference Shares of `100 each 187
14% 2,20,000 Preference Shares of `100 each 220
Total 1,257
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2. Reserves and Surplus 10.04.2015
` in Lakhs
10.04.2014
` in Lakhs
(i) General Reserves 8(ii) Investment Allowance Reserve 10
(iii) Export Profit Reserves 50
(ii) Profit & Loss Account 125
Total 193
3. Tangible Assets 10.04.2015
` in Lakhs
10.04.2014
` in Lakhs
(i) Land and Buildings 405
(ii) Plant and Machinery 495
(iii) Furniture & Fittings 92.5
Total 992.5
Working Notes:
1. Purchase Consideration:
Particulars (` in Lakh)
Equity Shareholders of Moon Ltd.
Preference Shareholders of Moon Ltd.
350.00
187.00
Total 537.00
2. The difference between the amount recorded as share capital issued by transferorcompany and the amount of share capital of transferee company should be the
adjusted in reserves:
Thus General Reserves:
` [75 - (537-470)] Lakh = ` 8 Lakh.
3. Total Equity Share Capital = ` 500 lacs (Existing) + ` 350 lacs (New Issue).
SECTION C
Answer Question No. 3(a) which is compulsory (carrying 10 marks) and also answer any one
(carrying 15 marks) from the remaining sub-questions.
3. (a) A Ltd. acquired 5,000 Shares of S Ltd. at ` 48 per Share Cum-Dividend constituting 62.50%
holding in the latter. Immediately after purchase, S Ltd. declared and distributed a
dividend at ` 4 per share, which A Ltd. credited to its Profit and Loss Account.
One year later, S Ltd. declared a Bonus of 1 fully paid Equity Share of ` 10 each of every 5
shares held. Later on, S Ltd. proposed to raise funds and made a Rights Issue of 1 share for
5 held at ` 36 per share. A Ltd. exercised its right.
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After some time, at its AGM, S Ltd. had decided to split its Equity Share of ` 10 into Two
Equity Shares of ` 5 each. The necessary resolutions were passed and share certificates
issued to all its existing shareholders.
To increase its stake in S Ltd. to 80%, A Ltd. acquired sufficient number of shares at ` 30
each.
Ascertain the Cost of Control as on 31st December, if S’s share in Capital Profits (dulyadjusted for purchase in lots) as on that date was ` 3,15,000. 10
Answer:
3. (a)
A. Cost of Investment
Particulars Shares `
Cost of first Acquisition (5,000 × `48)
Less: Pre-Acquisition Dividend (5,000 × `4 per Share) 5,000
N.A. 2,40,000
(20,000)
Corrected Cost of Investment
Add: Bonus Shares (1/5 × 5,000 Shares) 5,000
1,000 2,20,000
–
Cost after Bonus Shares
Add Rights Shares (1/5 × 6,000 Shares × `36)
6,000
1,200
2,20,000
43,200
Cost after Rights issue before Share Split 7,200 2,63,200
Cost after share split (WN) (2 Sh, for 1 for 7,200 Sh = 7,200 × 2)
Add: Acquisition to increase holding to 80% (WN) (4,032 × ` 30) 14,400
4,032 2,63,200
1,20,960
Balance on date of Consolidation 16,432 3,84,160
Notes:
Share Split: In case of Share Split, the COST of Acquisition will not undergo any change. Only
the number of Equity Shares and the face value will change. This is similar to adjustment for
Bonus Issue. However, for Bonus Issue, the face value and paid up value of the share will be
the same as the original share. In share split, the face value and paid up value will be lesser
than that of the original snares.
Calculation of Number of Shares to be acquired to increase stake to 80%
Particulars Shares
a. Shares held before acquisition
b. % of holding
c. Hence, Total Number of Shares of S Ltd. (a ÷ b)
d. 80% of above (c × 80%)
e. Number of Shares to be acquired (d – a)
= (14,400 ÷ 62.50%)
= (23,040 × 80%)
= (18,432 – 14,400)
14,400
62.5%
23,040
18,432
4,032
2. Cost of Control
Particulars `
Cost of Investment (A) (from 1 above) 3,84,160
Nominal Value of Equity Capital
Share in Capital Profit
(18,432 × ` 5 per Share) 92,160
3,15,000
Total of Above (B) 4,07,160
Capital Reserve (if B < A) (B-A) 2.3,000
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(b) The following are the Balance Sheet of Ram Ltd., Shyam Ltd. and Tom Ltd. as on
31.03.2015:
` in ‘000
Particulars Ram Ltd. Shyam Ltd. Tom Ltd.
Liabilities
Equity Share Capital (` 100 each)
8,000
4,000
1,600
General Reserve 1,600 280 —
Profit and Loss Account 1,360 960 —
Current Liabilities 1,280 3,000 1,120
Total 12,240 8,240 2,720
Assets
Investments:
32,000 shares in Shyam Ltd. 4,800 — —
4,000 shares in Tom Ltd. 200 — —
12,000 shares in Tom Ltd. — 720 —
Profit and Loss Account
—
—
640
Current assets 7,240 7,520 2,080
Total 12,240 8,240 2,720
From the following information, prepare consolidated Balance Sheet of Ram Ltd. and its
subsidiaries as on 31.03.2015:
(i) Shyam Ltd. has advanced ` 8,00,000 to Tom Ltd.
(ii) Current Liabilities of Ram Ltd. includes ` 4,00,000 due to Tom Ltd.
(iii) Shyam Ltd. and Tom Ltd. have not paid any dividend.
(iv) Ram Ltd. acquired its investments on 01.04.2014 from Shyam Ltd. and then amount
standing to credit of General Reserve and Profit & Loss Account were ` 2,80,000 and
` 5,20,000 respectively.
(v) Ram Ltd. acquired investments in Tom Ltd. on 01.04.2014. when the debit balance in
Profit and Loss Account in books of Tom Ltd. was ` 4,80,000.
(vi) Shyam Ltd. acquired its investments in Tom Ltd. on 01.04.2012 and then the debit
balance in Profit and Loss Account was ` 1,60,000.
(vii) Shyam Ltd.’s stock includes stock worth ` 4,80,000 which was invoiced by Ram Ltd.
at 20% above cost. 15
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Answer:
3. (b) Consolidated Balance Sheet of Ram Ltd. and its subsidiaries Shyam Ltd and Tom Ltd. as on
31.3.20 15
Particulars Note 31.03.2015
` ’000
31.03.2014
` ’000
I EQUITY AND LIABILITIES
(1) Shareholders' Funds:
Share Capital 8,000
(2)
Reserves & Surplus
- General Reserves
- Profit and Loss A/c
Minority Interest
1,600
1,496
952
(3) Current Liabilities
Trade payables [(1,280+3,000+1,120)-1,200] 4,200
Total 16,248
II ASSETS
(1) Non-Current Assets:
Intangible Assets - Goodwill 688
(2) Current Assets;
[(7,240+7,520+2,080)-(1,200+80)] 15,560
Total 16,248
Working Notes: 1. General Reserves Accounts and Profit and Loss Accounts of Shyam Ltd.:
General Reserve Account of Shyam Ltd.
Dr. Cr.
Date Particulars ` ’000 Date Particulars ` ’000
31.3.15 To Balance c/d 280 1.4.14 By Balance b/d 280
280 280
Profit and Loss Account of Shyam Ltd.
Dr. Cr.
Date Particulars ` ’000 Date Particulars ` ’000
31.3.15 To Balance c/d 960 1.4.14 By Balance b/d
By Profit earned during
the year (Bal. Fig.)
520
440
960 960
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2. Profit and Loss Account of Tom Ltd.
Dr. Cr.
Date Particulars ` ’000 Date Particulars ` ’000
1.4.12 To Balance b/d 160 31.3.13 By Balance c/d 160
160 1601.4.13 To Balance b/d
To Loss incurred during
the year (Bal. Fig.)
160
320
31.3.14 By Balance c/d 480
480 480
1.4.15 To Balance b/d
To Loss incurred during
the year (Bal. Fig.)
480
160
31.3.15 By Balance c/d 640
640 640
3. Analysis of Profits of Tom Ltd.
Particulars Capital
Profits` ’000
Revenue
Profits` ’000
(i) From the view point of Shyam Ltd.
Debit Balance in Profit and Loss Account as on 1.4.2012
Loss incurred between 1.4.2012 to 31.3.2015
[(320 + 160) – Refer W.N. 2]
(160)
(480)
(160) (480)
Share of Shyam Ltd. 75% [carried forward to W.N. 4] (120) (360)
(ii) From the view point of Ram Ltd.
Debit Balance of Profit and Loss Account as on 1.4.14Loss during the year 2014-15
(480)(160)
(480) (160)
Share of Ram Ltd. (25%) (120) (40)
4. Analysis of Profits of Shyam Ltd. (From the viewpoint of Ram Ltd.)
Particulars Capital
Profits
` ’000
Revenue
Profit
` ’000
General Reserve as on 1.4.14
Profit and Loss Account Balance as on 1.4.14
Profit earned during 2014-15 (W.N. 1)
Brought forward Shyam Ltd.’s share of loss in Tom Ltd. [W.N. 3(i)]
280
520
(120)
440
(360)
Share of Shyam Ltd. in revenue loss of Tom Ltd. for the period
1.4.14 to 31.3.14 [75% of (360-40)] being treated as capital loss
from view point of Ram Ltd. (240) 240
440 320
Less: Share of Minority Interest (20%) 88 64
Balance taken to Ram Ltd. (80%) 352 256
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5. Cost of Control
Particulars ` ’000 ` ’000
Investment by Ram Ltd. in
Shyam Ltd.
Tom Ltd.
Investment by Shyam Ltd. in
Tom Ltd.
4,800
200
720 5720
Less: Paid up value of shares of:
Shyam Ltd.
Tom Ltd. (400 + 1,200)
3,200
1,600
4,800
Investment by Shyam Ltd. in
Tom Ltd. 720 5,270
Less: Paid up value of shares of:
Shyam Ltd.
Tom Ltd. (400 + 1,200)
3,200
1,600
4,800
Capital loss of Ram Ltd. in Tom Ltd. [W.N. 3(ii)]
Capital Profit of Ram Ltd. in Shyam Ltd. (W.N. 4)
(120)
352 5,032
Goodwill 688
6. Consolidated Profit and Loss A/c of Ram Ltd.
Particulars ` ’000
Profit and Loss A/c Balance
Post acquisition share of loss from Tom Ltd.
Post acquisition share of profit from Shyam Ltd.
1,360
(40)
256
Less: Unrealised Profit on Stock (1/6th of 480)1,576
80
1,496
7. Minority Interest
Particulars ` ’000
Paid up value of shares in Shyam Ltd. (20% of 4,000)
Share of Capital Profit (W.N. 4)
Share of Revenue Profit (W.N. 4)
800
88
64
(c) The following is an abstract of the Balance Sheets of H Ltd., S Ltd. and D Ltd. as on March31, 2015:
Liabilities H Ltd. S Ltd. D Ltd.
` ` `
Share Capital:
Equity Share of ` 10 each fully paid 20,00,000 10,00,000 6,00,000
Reserves and Surplus:
Reserves 1,80,000 2,00,000 1,44,000
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Profit and Loss A/c 2,00,000 40,000 1,02,000
Current Liabilities & Provisions:
Creditors 60,000 60,000 20,000
24,40,000 13,00,000 8,66,000
Assets:
Fixed Assets
11,00,000
6,00,000
8,00,000
Investments:
75,000 shares in S Ltd. 10,00,000 — —
15,000 shares in D Ltd. 2,00,000 — —
40,000 shares in D Ltd. — 5,60,000 —
Current Assets, Loans & Advances:
Stock 1,20,000 1,00,000 56,000
Cash at Bank 20,000 40,000 10,000
24,40,000 13,00,000 8,66,000
H Ltd. purchased the shares in S Ltd. and in D Ltd. on Sept. 30, 2014, and S Ltd. also
purchased the shares in D Ltd. on the same day.
The following are the balances at the beginning of the year (01.04.2014)
S Ltd. D Ltd.` `
Reserves 1,80,000 1,20,000
Profit & Loss A/c 20,000 16,800
You are to assure that Profit accrue uniformly every month.
Required:
Prepare a Consolidated Balance Sheet of H Ltd. and its Subsidiaries as at March 31, 2015.
15
Answer:
3. (c) Balance Sheet of H Ltd. and its subsidiaries as on 31st March, 2015
Particulars Note 31.03.2015
(`)
31.03.2014
(`)
I EQUITY AND LIABILITIES
(1) Shareholders' Funds:
Share Capital – Equity shares of `10 each 20,00,000
(2)
Reserves & Surplus
- Reserves
- Profit and Loss A/c
Minority Interest
1,96,500
2,39,450
3,89,594
(3) Current Liabilities
Trade payables (Creditors)
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[60,000 + 60,000+ 20,000] 1,40,000
Total 29,65,544
II ASSETS
(1) Non-Current Assets:
Fixed Assets
Tangible Assets [11,00,000 + 6,00,000 + 8,00,000]
Intangible Assets - Goodwill
25,00,000
1,19,544
(2) Current Assets;
Inventories [1,20,000 + 1,00,000 + 56,000]
Cash and cash equivalents [20,000 + 40,000 + 10,000]
2,76,000
70,000
Total 29,65,544
Position on 30.09.2014
Particulars Reserve (`) Profits (`)
D Ltd.
Balance as on 31.03.2015 1,44,000 1,02,000
Less: Balance as on 01.04.2014 1,20,000 16,800
Increase during the year 24,000 85,200
Estimated increase for half year 12,000 42,600
Balance as on 30.09.2014 (1,20,000 + 12,000) i.e.
1,32,000
(16,800 + 42,600) i.e.
59,400
S Ltd.
Balance as on 31.03.2015 2,00,000 40,000
Less: Balance as on 01.04.2014 1,80,000 20,000
Increase during the year 20,000 20,000
Estimated increase for half year 10,000 10,000
Balance as on 30.09.2014 (1,80,000 + 10,000) i.e.
1,90,000
(20,000 + 10,000) I.e.
30,000
Analysis of Profits:
Particulars Capital Profit(`)
Revenue Reserve(`)
Revenue Profit(`)
D Ltd.
Reserves as on 30.09.2014 1,32,000
Profit and Loss A/c as on 30.09.2014 59,600
Increase in Reserves 12,000
Increase in Profit and Loss A/c 42,600
Total 1,91,400 12,000 42,600
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Share of H Ltd. (25%) 47,850 3,000 10,650
Share of S Ltd. (66.67%) 1,27,606 8,000 28,400
Minority Interest (8.33%) 15,944 1,000 3,550
S Ltd.
Reserves as on 30.09.2014 1,90,000
Profit and Loss A/c as on 30.09.2014 30,000
Increase in Reserves 10,000
Increase in Profit and Loss A/c 10,000
Total 2,20,000 10,000 10,000
From D Ltd. -- 8,000 28,400
Total 2,20,000 18,000 38,400
Share of H Ltd. (75%) 1,65,000 13,500 28,800
Minority Interest (25%) 55,000 4,500 9,600
Computation of Cost of Control:
Particulars (`) (`)
Cost of Investment in S Ltd. 10,00,000 -
Cost of Investment in D Ltd. (2,00,000 + 5,60,000) 7,60,000 17,60,000
Less:
Share of Capital Profit in D Ltd. (47,850 + 1,27,606) 1,75,456
Share of Capital Profit in S Ltd. 1,65,000 3,40,456
Nominal Value of Shares (7,50,000 + 1,50,000 + 4,00,000) 13,00,000
Goodwill 1,19,544
Computation of Consolidated Reserves and Profit:
Particulars Reserves
(`)
Profit and Loss A/c
(`)
Balance of H Ltd. 1,80,000 2,00,000
Share in D Ltd. 3,000 10,650
Share in S Ltd. 13,500 28,800
TOTAL 1,96,500 2,39,450
Computation of Minority Interest:
Particulars (`)
Nominal Value of Shares in S Ltd. 2,50,000
Nominal Value of Shares in D Ltd. 50,000
Share of Capital Profit in S Ltd. 55,000
Share of Capital Profit in D Ltd. 15,944
Share of Revenue Reserves and Profit in S Ltd. (4,500 + 9,600) i.e. 14,100
Share of Revenue Reserves and Profit in D Ltd. (1,000 + 3,550) i.e. 4,550
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Total 3,89,594
SECTION D
Answer Question No. 4(a) which is compulsory (carrying 5 marks) and answer any two
(carrying 10 marks each) from the remaining sub-questions.
4. (a) MS ANDRILA. an investor buys a stock option of ANISHA LTD. in July 2015 with a strike
price on 30th July. 2015 `300, to be expired on 30th August, 2015. The premium is ` 25 per
unit and the market lot is 100. The margin to be paid is ` 130 per unit.
Required:
Show the accounting treatment (Journal Entries) in the Books of Ms ANDRILA when:
(i) The option is settled by delivery of the asset,
(ii) The option is settled in Cash and the Index price is ` 310 per unit. 5
Answer:
4. (a) Ms. ANDRILA
(i) When the option is settled by delivery of the Asset:
Journal Entries:
Date Particulars Dr.
(`)
Cr.
(`)
30.7.2015 Equity Stock Option Premium (Anisha Ltd.) A/c Dr. 2,500
To Bank A/c 2,500
(Being Premium Paid on Stock Option of Anisha Ltd.
purchased at ` 25 per unit for 100 units constituting one lot.)
30.8.2015
Equity Shares of Anisha Ltd. A/c Dr.
30,000
To Bank A/c 30,000
(Being Call option exercised and shares acquired)
30.8.2015 Profit & Loss A/c Dr. 2,500
To Equity Stock Option Premium (Anisha Ltd.) A/c 2,500
(Being Premium on option written off on exercise of option.)
Note : No entries have been passed in respect of Margin payments. This is because, the
buyer of the option contract is not required to pay any margin.
(ii) When the option is settled in cash and the index price ` 310 per unit:
Journal Entries:Date Particulars Dr.
(`)
Cr.
(`)
30.7.2015 Equity Stock Option Premium (Anisha Ltd.) A/c Dr. 2,500
To Bank A/c 2,500
(Being Premium paid on stock option of Anisha Ltd. purchased
at ` 25 per unit for 100 units constituting one lot.)
30.8.2015 Bank A/c Dr. 1,000
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To Profit & Loss A/c 1,000
(Being the Profit on exercise of option received. Profit = Market
lot of 100 x (I.P. of ` 310 - S.P. of ` 300)
30.8.2015 Profit & Loss A/c Dr. 2,500
To Equity Stock Option Premium (Anisha Ltd.) A/c 2,500
(Being Premium on option written off on exercise of option.)
(b) A Mutual Fund raised funds on 01.04.2014 by issuing 10 lakhs units @ 17.50 per unit. Out of this
Fund, ` 160 lakhs invested in several capital market instruments. The initial expenses amount
to ` 9 lakhs. During June, 2014 the Fund sold certain securities worth ` 100 lakhs for ` 125
lakhs and it bought certain securities for ` 90 lakhs. The Fund Management expenses
amounting to ` 5 lakhs per month. The dividend earned was ` 3 lakhs. 80% of the realised
earnings were distributed among the unitholders. The market value of the portfolio was ` 175
lakhs. Determine Net Asset Value (NAV) per unit as on 30.06.2014. 10
Answer:
4. (b) Total Funds raised by Mutual Fund = 17.5 x 10 Lakhs = 175 Lakhs
(` In lakhs)
` `
Opening Bank Balance (175 -160 -9) 6
Add: Proceeds from sale of securities 125
Add: Dividend received 3
Less: 134
Cost of securities purchased 90Management expenses 15
(` 5 lakhs x 3 months)
Realised gains distributed 20
[80% of (` 125 lakhs - ` 100 lakhs)]
Dividend distributed (80% of ` 3 lakhs) 2.40 127.40
Closing Bank Balance 6.60
Closing Market value of portfolio 175.00
Closing Net Assets 181.60
No. of Units (Lakh) 10.00
Closing NAV - ` 181.60 lakhs divided by 10 lakh units = ` 18.16
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(c) The following particulars in respect of Stock Option granted by a Company are available:
Grant date April 1, 2012
Number of Employees covered 500
Number of Options granted per employee 100
Fair Value of Option per share on grant date (`) 25
The Vesting Period shall be determined as below:
(i) If the Company earns ` 120 Crores or above after taxes in 2012-13, the Options will
vest on 31.03.2013.
(ii) If condition (a) is not satisfied but the Company earns ` 250 Crores or above after
taxes in aggregate in 2012-13 and 2013-14, the Options will vest on 31.03.2014.
(iii) If condition (i) and (ii) are not satisfied but the Company earns ` 400 Crores or above
after taxes in aggregate in 2012-13 and 2013-14 and 2014-15, the Options will vest
on 31.03.2015.
Position on 31.03.2013
Position on 31.03.2014
(a) Company earned `115 Crores after
taxes in 2012-13
(b) Company expects to earn ` 140 Crores
in 2013-14 after taxes
(c) Expected vesting date: 31.03.2014
(d) No. of employees expected to be
entitled to Option = 474
(a) Company earned ` 130 Crores after
taxes in 2013-14
(b) Company expects to earn ` 160
Crores in 2014-15 after taxes
(c) Expected vesting date: 31.03.2015
(d) No. of employees expected to be
entitled to Option = 465
Position on 31.03.2015
(a) The Company earned ` 165 Crores
after taxes in 2014-15
(b) No. of employees on whom Optionactually vested = 450
Compute the expenses to recognize in each year. 10
Answer:
4. (c) 1. Year 2012-13
Profit for the Period
Therefore, Option will vest on
Hence, vesting period is
` 115 Crores
31.03.2014
2 Years
Fair Value of Option per share
Number of Shares actually vested under the Scheme = [474 Employees x 100]
Total Fair Value = 47,400 Shares × ` 25
Value of Option recognized as expense in 2012-2013 = ` 11,85,000/2
` 25
47,400
` 11,85,000
` 5,92,500
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2. Year 2013-14
Cumulative Profits for 2012-13 and 2013-14 (115 Cores + 130 Crores)
Therefore, Option will vest on
Hence, vesting period is
` 245 Crores
31.03.2015
3 Years
Fair Value of Option per share
Number of Shares expected to vest under the Scheme = 465 Employees x 100
Shares
Fair Value of Options expected to vest = 46,500 x ` 25
` 25
46,500
` 11,62,500
Cumulative value of Option to recognize as expense for Two Years =
(`11,62,500/3 Years) x 2 Years
Less: Value of Option recognized as expense in 2012-13
7,75,000
(5,92,500)
Value of Option recognized as expense in 2013-14 ` 1,82,500
3. Year 2014-15
Fair Value of Option per share `25
Number of Shares expected to vest under the Scheme = 450 Employees x 100Shares
45,000
Total Fair Value of the Options vesting = 45,000 x ` 25 ` 11,25,000
Total Vesting Period 3 Years
Cumulative value of Option to recognize in 12-13,13-14 and 14-15
Less: Value of Option recognized as expense in 12-13 and 13-14
11,25,000
(7,75,000)
Value of Option recognized as expense in 2014-15 ` 3,50,000
(d) Prepare a value added statement for the year ended on 31.03.2015 and reconciliation of
total value added with profit before taxation, from the Profit and Loss Account of Futures
Ltd. for the year ended on 31.03.2015:
(` in ‘000)
Income:
Sales 24,400
Other Income 508
24,908
Expenditure:
Operating cost 21,250
Excise duty 1,110
Interest on Bank Overdraft 75
Interest on 9% Debentures 1,200 23,635
Profit before Depreciation 1,273
Depreciation
405
Profit before tax 868
Provision for tax 320
Profit after tax 548
Proposed Dividend 48
Retained Profit 500
The following additional information are given:
(i) Sales represents Net sales after adjusting Discounts, Returns and Sales tax.
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(ii) Operating cost includes ` 82,50,000 as wages, salaries and other benefits to
Employees.
(iii) Bank overdraft is temporary. 10
Answer:4. (d) Value Added Statement of M/s Futures Ltd.
` in ’000
Particulars ` ` `
Sales 24,400
Less: Operating cost - Cost of bought in material & services
(` 21,250 - ` 8,250)
13,000
Excise duty 1,110
Interest on bank overdraft 75 14,185
Value added by trading and manufacturing activities 10,215
Add: Other income
508
Total value added 10,723
Application of value added %
To pay Employees:
Wages, salaries and other benefits 8,250 76.94
To Pay Government: Corporate tax 320 2.98
To pay providers of capital:
Interest on 9% debentures 1,200
Dividends 48 1,248 11.64
To Provide for maintenance and expansion of the company:
Depreciation 405
Retained profit 500 905 8.44
10,723 100.00
Reconciliation
Profit before tax 868
Depreciation 405
Wages, salaries and other benefits to employees 8,250
Debenture interest 1,200
10,723
SECTION E
Answer any three sub-questions (carrying 5 marks each).
5. (a) Write a note on the objectives of Indian Government Accounting Standard 4 (General
Purpose Financial Statements of Government). 5
Answer:
5. (a) The purpose of this Standard is to lay down the principles to be followed in presentation of
general purpose financial reports of Governments and to prescribe the minimum
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requirements relating to structure and contents of financial statements of government
prepared under cash basis of accounting.
The statement of receipts and disbursements during the year and information about cash
flows of an Entity enable stakeholders to evaluate the likely sources and uses of cash and
the ability of an Entity to generate adequate cash in the future. This information also
indicates the expenditure priorities of the Entity in the delivery of goods and services aswell as the impact of the taxation policies of the Entity. Stakeholders can then assess the
sustainability of the Entity’s activities (whether future budgetary resources will be sufficient
to sustain public services and to meet obligations as they become due) and appraise
financial accountability.
All Financial Statements need to be standardized to obtain optimal information, to ensure
comparability with the Entity’s own financial Statements of previous periods and with
those of other entities. The basis and policies of accounting need to be uniform to permit
meaningful consolidation to develop Whole of Government Accounts. Desirable
attributes need to defined to obtain a basic standard for financial reporting.
To achieve these objectives, this Standard sets out the financial elements for the
presentation of financial reports prepared under the cash basis of accounting. It also
requires that the selection of accounting policy should ensure certain qualitativecharacteristics in the information being presented. Desirable attributes of financial
reporting are required to heighten their value to the users.
General Purpose Financial Statements (GPFS) essentially consists of Finance Accounts
and Appropriation Accounts. The Financial Statements referred to in this standard are the
General Purpose Financial Reports (GPFR).
(b) List the responsibilities of the Government Accounting Standards Advisory Board 5
Answer:
5. (b) Responsibilities of the Government Accounting Standards Advisory Board:
• To establish and improve standard of Government accounting and financialreporting in order to enhance accountability mechanisms.
• To formulate and propose standards that improve the usefulness of financial reports
based on the needs of the users.
• To keep the standards current and reflect change in the Governmental environment;
• To provide guidance on implementation of standards.
• To consider significant areas of accounting and financial reporting that can be
improved through the standard setting process.
• To improve the common understanding of the common understanding of the nature
and purpose of information contained in the financial reports.
(c) Disuss —
(i) The changes made in the set-up of Public Accounts Committee on 26the January,
1950.
(ii) Procedure of Appointment of Chairman of the Public Accounts Committee. 3+2=5
Answer:
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